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Thoughts On: Dispute Resolution (Part II)

Previously I discussed the merits of a binding arbitration clause and the strategic and tactical implications such clauses.

As I wrote in that prior post, the decision to agree to mandatory binding arbitration is weighty. Arbitration can be very costly as the parties to a dispute must pay fees to the arbitration service providing the dispute resolution services. Parties must also pay the arbitrators and may have to even pay for the facilities to conduct the arbitration.

Such costs, of course, are in addition to the party’s own legal fees. Sometimes, parties agree that the prevailing party in a dispute may collect attorneys’ fees from the losing party. Whether or not you expect to face litigation, as well as whether or not you expect to use the tools of litigation to enforce your own rights, an attorneys’ fees provision in a contract may be alternately beneficial or detrimental to your ability to enforce your rights and obligations under an agreement.

On one hand, an attorneys’ fees provision in a contract can serve to discourage parties from filing frivolous lawsuits. In such cases, parties will likely refrain from filing a lawsuit unless they are very certain of their likelihood of prevailing at trial.

On the other hand, attorneys’ fees provisions can prevent legitimate, justified lawsuits to enforce a party’s rights and obligations under a contract if that party is not assured of likely success at trial and is concerned about being stuck with a bill for the other side’s legal fees in the event they lose at trial.

While an attorneys’ fees provision in an agreement may reduce the likelihood that you will face meritless lawsuits, it also may simultaneously disincentivize you from bringing a lawsuit in the event the other party breaches the contract or otherwise violates your rights.

The decision to include an attorneys’ fees provision in an agreement, and the degree to which that issue is a deal breaker for a party, depends on assessment of the relative risks rewards and assessing the bargaining positions of each party. It may be the case that in some deals an attorneys’ fees provision will be beneficial to you and in other cases not so much.

I plan to continue providing thoughts on dispute resolution matters. Stay tuned to this blog for more.

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